Annual Evaluation of the Hawai‘i Unemployment Compensation Fund

State of Hawai‘i Department of Labor & Industrial Relations

December 2011

STATE OF HAWAI‘I Neil Abercrombie, Governor DEPARTMENT OF LABOR AND INDUSTRIAL RELATIONS Dwight Takamine, Director Audrey Hidano, Deputy Director RESEARCH AND STATISTICS OFFICE Francisco P. Corpuz, Chief Operations Management Information Staff Elienne Yoshida, Supervisor 830 Punchbowl Street, Room 304 Honolulu, HI 96813 (808) 586-9005 UNEMPLOYMENT INSURANCE DIVISION Linda Y. Uesato, Administrator December 2011

TABLE OF CONTENTS Page Executive Summary ................................................................................................... 1 Background Information ........................................................................................... 3

• Purpose of Report • Fund Definition and Requirements

Status of the Unemployment Compensation Fund ................................................ 4

• Status of the Fund • Fund Solvency • Tax Rates • Taxable Wage Base

Economic Factors ..................................................................................................... 6

• General Conditions • Labor Force Data • Insured Unemployment and Employment Covered by the UC Fund • Weekly Benefit Amounts and Average Duration

Experience Rating ...................................................................................................... 10

• Description • Charged and Noncharged Benefits • 2010 Employer Data

Appendixes A Computation of Employer Contribution Rates ......................................................... A-1 B Annual Data from 1970

• Labor Force Data ............................................................................................. A-2 • Insured Unemployment and Employment Covered by the UC Fund ................ A-3 • Weekly Benefit Amount and Average Duration ................................................ A-4 • Hawai‘i Unemployment Compensation Fund ................................................... A-5 • Ratio of Current to Adequate Reserve Fund .................................................... A-6 • Unemployment Insurance Tax Rates ............................................................... A-7 • Total and Taxable Wages ................................................................................ A-8 • Charged and Noncharged Benefits .................................................................. A-9

C Benefits Not Charged to Employer Accounts .......................................................... A-10 D The Hawai‘i Unemployment Compensation Fund and Economic Conditions: 1970 to the Present .......................................................................... A-11

This Page Intentionally Left Blank

1

EXECUTIVE SUMMARY Highlights

2010 2011 2012 Unemployment Compensation Fund Contributions $161 million $275million* $416 million* Interest $2 million $0 million* $4 million* Benefits $305 million $248 million* $247 million* Fund Balance (end of year) -$12 million $16 million* $189 million* Unemployment Rates Hawai‘i Insured Unemployment Rate 3.16% 2.6%* 2.5%* Hawai‘i Total Unemployment Rate 6.6% 6.3%* 6.0%* U.S. Total Unemployment Rate 9.6% 9.0%* Taxable Wage Base $34,900 $34,200 $38,800 Tax Schedule Schedule D Schedule F Schedule H Tax Rates Minimum 0.2% 1.2% 2.4% Maximum 5.4% 5.4% 5.4% Average % of Taxable Wages 1.76% 2.7%* 3.8%* % of Total Wages 1.2% 1.8%* 2.6%* Weekly Benefit Amount Minimum $5 $5 $5 Maximum $559 $549 $523 Average $406 $405* Average Benefit Duration 19.7 weeks 18.5 weeks*

* estimated

Status of the Fund The Hawai‘i Unemployment Compensation Fund balance was $37.5 million at the end of November 2011. During the first eleven months of 2011, $276 million in taxes and $0.03 million in interest were added to the Fund. At the same time, $227 million in benefits were paid out from the Fund. As of November, the fund balance is 0.10 of the adequate level. This amount would finance slightly more than one month of unemployment at the worst level experienced during the last ten years. The unemployment fund was depleted in December 2010 requiring borrowing from the federal loan fund. Borrowing continued during 2011 with all loans repaid by August 2011. Interest on loans is assessed by the federal government once a year. On September 29, 2011 Hawai‘i paid $211,151.47 in interest on loans. Assuming the calendar year 2012 insured unemployment rate averages 2.5%, or about 13,900 claims per week, the fund balance is estimated to be $189 million at the end of 2012. With this improved fund balance, schedule F would be in effect for 2013.

2

Unemployment Compensation Fund

($100)

$0

$100

$200

$300

$400

$500

$600

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Taxes Interest Benefits Fund Balance

Millions of $

2011-2012projected

Economic Factors The national unadjusted total unemployment rate (TUR) was 8.5% as of October 2011, decreasing from the October 2010 rate of 9.0%. Hawai‘i’s unadjusted total unemployment rate (TUR) was 6.5% in October 2011 as compared to 6.4% in October 2010. Hawai‘i’s total nonagricultural wage and salary job count grew in 2011, averaging 592,300 for the ten months ending October 2011. This is a 7,600 increase from the average of 584,800 for the same period in 2010. The insured unemployment rate (IUR), a measure of the unemployed covered by Hawai‘i’s unemployment compensation program, is used to project outgo from the Unemployment Compensation Fund. The IUR averaged 3.16% in 2010. It is at 2.4% as of November 2011. Projections in this report assume slightly declining unemployment levels in Hawai‘i through 2012. Trust fund estimates are based on an insured unemployment rate (IUR) of 2.6% in 2011 and 2.5% in 2012.

Unemployment Rates

0%

2%

4%

6%

8%

10%

12%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

U.S. TUR

Hawaii TUR

Hawaii IUR

2011projected

2012 Tax Schedule and Taxable Wage Base Taxes will increase in calendar year 2012 due to the low fund balance at the end of November 2011. Tax schedule H will be in effect for the calendar year 2012. Tax rates will range from 2.4% to 5.4%. The average tax rate is estimated to be 3.8%. The taxable wage base (maximum annual wages taxable per employee) will be $38,800 in 2012.

3

BACKGROUND INFORMATION Purpose of Report

This report is produced to meet the requirements of section 383–126.5, Hawai‘i Revised Statutes, which calls for an annual evaluation of the adequacy of the Hawai‘i Unemployment Compensation Fund balance, taking into account conditions in the State and national economic trends. The report is due to the Legislature no later than 20 days prior to the convening of the regular session.

Fund Definition and Requirements

Establishment of Fund in Hawai‘i state law. The Hawai‘i Employment Security Law (Hawai‘i Revised Statutes, chapter 383) establishes the Unemployment Compensation Fund under the administration of the Department of Labor and Industrial Relations. Unemployment insurance contributions (taxes) are collected from employers and deposited into this fund. Interest earned on the fund balance is also credited to the fund. The fund can be used only to pay unemployment insurance benefits or refunds of overpaid contributions. Federal requirements. Both state and federal laws govern the unemployment insurance program. The Federal Unemployment Tax Act (FUTA), which is part of the U.S. Internal Revenue Code, provides for a federal payroll tax—currently 6.0% of the first $7,000 in wages per year per employee. Employers receive a tax credit of 5.4% against the Federal tax (resulting in a net tax rate of 0.6%) if their state's law meets all the requirements in the federal laws. The federal tax pays for state and federal administration costs, the federal share of extended benefits, and a loan fund for states that deplete their unemployment funds. The Social Security Act also contains many requirements relating to the unemployment insurance program. Three important trust fund related federal requirements are as follows.

• All state unemployment compensation funds must be maintained in the U.S. Treasury as part of the

federal Unemployment Trust Fund. Each state has an account in the Trust Fund and interest is paid quarterly to the account by the federal government.

• The Trust Fund can be used essentially only for the payment of unemployment benefits. • Employers receive the full 5.4% federal tax credit only if the state's system for determining individual

employer tax rates meets federal standards. For example, the state's maximum tax rate must be at least 5.4% and an employer's tax rate may be reduced from the maximum, but the reduction must be based on that employer's experience with unemployment (experience rating).

Nonconformity to federal standards can result in:

• denial of all credit against the federal tax (employer's federal tax would be the full 6.0% on the

$7,000 wage base); • denial of additional credit (employer's federal tax would be the difference of the full federal tax minus

their state taxes paid); and/or • denial of administration grants to run the state program.

To insure that Hawai‘i employers continue to receive full federal unemployment tax credits, and funding for the state program is not lost, federal standards must be considered in developing laws affecting Hawai‘i's Unemployment Compensation Fund. Self-financing of benefits by governmental and/or nonprofit employers. Sections 383-62 and 62.5, Hawai‘i Revised Statutes provide that State and County governmental employers, nonprofit organizations described in section 501(c)(3) of the Internal Revenue Code and exempt from income tax under section 501(a) of such code, and Indian tribes may elect exemption from paying contributions by requesting self-financing status.

4

STATUS OF THE UNEMPLOYMENT COMPENSATION FUND Status of the Fund (Historical data from 1970: Appendix B, page A-5)

The fund balance was $37.5 million at the end of November 2011 compared to negative $12 million at the end of 2010. During the first eleven months of 2011, $276 million in taxes and $0.03 million in interest were added to the Fund. At the same time, $227 million in benefits were paid out from the Fund. The unemployment fund was depleted in December 2010 requiring borrowing from the federal loan fund. Borrowing continued during 2011 with all loans repaid by August 2011. Interest on loans is assessed by the federal government once a year. On September 29, 2011 Hawai‘i paid $211,151 in interest on loans using a temporary 0.1% increase in the Employment and Training Fund assessment enacted during the 2011 Legislative session. Projections through 2012: For this report, the insured unemployment rate is projected to average 2.6% in 2011 and 2.5% in 2012. This would result in a benefit outgo of about $247 million in 2012. Taxes and interest are projected at about $420 million in 2012. On the basis of this forecasted level of unemployment, the fund balance would be about $189 million by the end of 2012 and Tax Schedule F would be in effect for 2013.

HAWAI‘I UNEMPLOYMENT COMPENSATION FUND (in millions of $)

Year Taxes

Interest

Benefits Fund BalanceFederal

Loan Balance

2008 $59.4 $31.5 $212.3 $430.8 2009 $42.1 $12.7 $373.9 $134.4 2010 $160.9 $1.9 $305.2 -$11.6 $14.6

2011 Jan $11.0 $0.0 $24.8 -$25.4 $28.2 Feb $21.8 $0.0 $20.1 -$23.8 $23.9 Mar $0.2 $0.0 $20.8 -$44.4 $49.4 Apr $20.8 $0.0 $19.6 -$43.2 $50.6 May $75.4 -$0.1 $23.4 $8.7 $0.0 Jun $0.8 $0.0 $20.4 -$10.9 $18.3 Jul $28.7 $0.0 $18.4 -$0.6 $10.7 Aug $52.7 $0.0 $22.0 $30.1 $0.0 Sep $0.5 $0.1 $18.0 $12.8 $0.0 Oct $26.6 $0.0 $20.0 $19.4 $0.0 Nov $37.5 $0.0 $19.3 $37.5 $0.0

Projected

2011 $275 $0.2 $247 $16 2012 $416 $3.6 $247 $189

Fund Solvency (Historical data from 1970: Appendix B, page A-6)

The Hawai‘i Employment Security Law defines the factors used to measure the adequacy of the Fund and how the tax rate schedule for the coming year is determined based on that adequacy level. Appendix A outlines the method for determining the tax schedule and how each employer's individual tax rate is computed based on the employer's benefit and contribution experience as well as the schedule in effect. During the 2007 Legislative Session, Act 110 temporarily redefined the adequate reserve fund as the amount of benefits that would be paid out during one year of unemployment at the highest level experienced during

5

the most recent ten years. The prior provisions of the law set the amount at one and one-half years at the highest cost rate. During the 2010 Legislative Session, Act 2 permanently redefined the adequate reserve fund amount to the one-year highest cost rate. On page A-6, Appendix B, the table entitled Ratio of Current to Adequate Reserve Fund shows the data used in tax schedule computations since 1970. For the 2012 tax schedule computation, the adequate amount is $370,943,185. The current reserve fund (actual fund assets as of November 30, 2011) is $37,507,312. At this fund level, Schedule H will be in effect for 2012.

Tax Rates (Historical data from 1970: Appendix B, page A-7)

One of eight tax schedules, A through H, is in effect for a calendar year as explained in Appendix A. Schedule A has the lowest tax rates, while schedule H has the highest. The average tax rate attainable from a particular tax schedule depends on the distribution of employers by reserve ratio groups. Employers tend to move to higher reserve ratio groups during periods when contributions exceed benefits. During such times, more employers move into the lower tax rate groups and the average tax rate for a schedule decreases. Conversely, during periods of high unemployment, more employers move to the higher tax rate groups and the average tax rate for each schedule automatically increases. Under Act 2 (2010 Legislative Session), rather than apply the computed tax schedules, Schedule D was set for rate year 2010 and Schedule F was set for rate year 2011. Without Act 2, the tax schedule would have been F for 2010 and G for 2011. Minimum, maximum, and average tax rates are shown on page A-7; Appendix B. Taxes are estimated to average about 3.8% of taxable wages during calendar year 2012 with Schedule H in effect.

Taxable Wage Base (Historical data from 1970: Appendix B, page A-8)

There is a maximum limit on the amount of taxable annual wages per employee for unemployment insurance tax purposes. The law sets this amount, the taxable wage base, at 100% of the statewide average annual wage. Act 110 (2007 Legislative Session) set the taxable wage base at $13,000 for 2008 through 2010. Act 110 also contained a provision to increase the wage base back to the regular formula if the fund fell below the adequate reserve fund level. Because the fund fell below adequate at the end of November 2009, the 2010 wage base computation should have returned to the 100% formula. However, Act 2 (2010 Legislative Session) reduced the taxable wage base to 90% of the average annual wage for calendar years 2010 and 2011. From 2012, the usual formula is in effect setting the taxable wage base for calendar year 2012 at $38,800. This is a $4,600 increase from the $34,200 wage base in 2011. Setting the wage base at the average annual wage results in approximately 69% of all wages being subject to unemployment insurance taxes. The $13,000 taxable wage base lowered the percent of total wages taxed to about 36%. The 90% formula resulted in about 67% of wages taxed. The Total and Taxable Wages table on page A-8, Appendix B shows the taxable wage bases and the proportions of wages taxed since 1970. The current tax schedule system was designed to work with the currently defined taxable wage base. When the wage base is lowered, the tax schedules will produce lower levels of income than they were designed to produce.

6

ECONOMIC FACTORS

General Conditions Hawai‘i’s and the national unemployment rates have stabilized and improved slightly during 2011. The national unadjusted total unemployment rate (TUR) was 8.5% for October 2011, decreasing from the October 2010 rate of 9.0%. Hawai‘i’s unadjusted TUR was 6.5% in October 2011 as compared to 6.4% in October 2010. As shown in the chart below, Hawai‘i’s unemployment rate ranged from a high of 7.2% in June 2010, to a low of 5.6% in April 2011. For the month of October 2011, unemployment rates were 5.6% for Honolulu, 7.6% for Maui County, 9.3% for Hawai‘i County, and 8.5% for Kaua‘i County. Hawai‘i’s total nonagricultural wage and salary job count averaged 592,300 for the ten months ending October 2011. This is a 7,600 increase from the 584,800 average for the same period in 2010. Comparing October 2010 to October 2011, the total job count is up from 590,700 to 597,000. This is a 6,300 or 1.1% increase. Most industrial sectors were stable with small increases or decreases in jobs. The three sectors with the largest percentage growth were Professional and Business Services, Educational and Health Services, and Leisure and Hospitality. Outlook: This report assumes slightly improved unemployment levels for Hawai‘i through 2012.

Total Unemployment Rates - Hawaii, U.S.(unadjusted)

0%

2%

4%

6%

8%

10%

12%

J F M A M J J A S O N D J F M A M J J A S O

U.S.

Hawaii

2010 2011

Total Unemployment Rates by County(unadjusted)

0%

2%

4%

6%

8%

10%

12%

J F M A M J J A S O N D J F M A M J J A S O

HonoluluMauiHawaiiKauai

2010 2011

7

Labor Force Data (Historical data from 1970: Appendix B, page A-2)

Employment in Hawai‘i grew from an annual average 587,400 in calendar year 2010 to 593,600 during the first ten months in 2011. Unemployment decreased from an average of 41,600 in 2010 to 40,000 for the January through October 2011 period. Hawai‘i's total unemployment rate (TUR) averaged 6.3% over the first ten months of 2011, improving from the calendar year 2010 average of 6.6%. The total unemployment rate for the U.S. averaged 9.1% for the first ten months of 2011, increasing over the calendar year 2010 average of 9.6%. Projections for this publication assume the Hawai‘i total unemployment rate will average 6.3% in 2011 and 6.0% in 2012.

LABOR FORCE DATA Unadjusted

Hawai‘i U.S.

Year

Employment

UnemploymentTotal

Unemployment Rate

Total Unemployment

Rate

2009 588,650 43,100 6.8% 9.3% 2010 587,400 41,600 6.6% 9.6%

2011 Jan 589,800 39,850 6.3% 9.8% Feb 592,650 40,050 6.3% 9.5% Mar 597,250 39,000 6.1% 9.2% Apr 600,750 35,850 5.6% 8.7%

May 594,750 37,350 5.9% 8.7% Jun 593,250 43,500 6.8% 9.3% Jul 598,300 40,700 6.4% 9.3%

Aug 593,150 40,850 6.4% 9.1% Sep 586,300 41,750 6.6% 8.8% Oct 589,750 40,850 6.5% 8.5%

Projected

2011 6.3% 2012 6.0%

8

Insured Unemployment and Employment Covered by the Unemployment Compensation Fund (Historical data from 1970: Appendix B, page A-3)

The average monthly number of employees covered by the Fund was 423,429 in 2010, decreasing from 435,018 in 2009. Covered employees increased slightly to an average of 425,665 during the first half of 2011. The insured unemployment rate (IUR) is average weekly unemployment insurance claims as a percent of covered employees. The IUR was 2.44% as of November 2011, compared to the 2010 average of 3.16%. The average weekly number of claims filed under the regular state program was 17,302 in 2010. The number of weekly claims averaged 13,501 as of November 2011. Projections for the IUR: average of 2.6% for 2011 and 2.5% for 2012.

INSURED UNEMPLOYMENT RATE AND EMPLOYMENT COVERED BY THE UC FUND

Year

Insured Unemployment Employees

Covered By the Fund

Rate (IUR)

Average Weekly Claims*

2009 3.36% 20,176 435,018 2010 3.16% 17,302 423,429

2011 Jan 2.83% 15,631 422,091 Feb 2.78% 15,342 425,479 Mar 2.73% 15,064 428,310 Apr 2.60% 14,337 425,763 May 2.59% 14,256 425,460 Jun 2.60% 14,337 426,888 Jul 2.63% 14,514 Aug 2.61% 14,410 Sep 2.54% 14,031 Oct 2.47% 13,666 Nov 2.44% 13,501

Projected

2011 2.6% 14,400 2012 2.5% 13,900

*Monthly data are for the week containing the 12th of the month and are based on 13-week moving averages. Figures do not included claims under special programs that extend benefits beyond 26 weeks of regular benefits.

9

Weekly Benefit Amounts and Average Duration (Historical data from 1970: Appendix B, page A-4)

The maximum weekly benefit amount payable to claimants will decrease to $523 for the calendar year 2012—$26 less than the $549 maximum in 2011. Under Hawai‘i's law a new maximum weekly benefit amount is normally computed each year as 70% of the current statewide average weekly wage. Prior to 1992, the computation used 2/3 rather than 70%. Effective for calendar years 2008 through 2010, the computation was made with a 75% multiplier due to Act 110 (2007 Legislative Session). Act 2 (2010 Legislative Session) extended the 75% multiplier through the 2011 computation. Average weekly benefits received by claimants averaged $405 for the 12-month period ending October 2011 as compared to an average of $406 for calendar year 2010. A weekly benefit amount is computed for each claimant based on prior earnings. Average weekly benefits usually increase over time with increases in earnings. Average benefits increase more rapidly when workers with higher wages experience more unemployment, and may decrease when lower wage claimants represent a larger proportion of the unemployed. Claimants may receive up to the equivalent of 26 weeks of regular benefits at their computed weekly benefit amount. However many return to work before collecting this entire amount. The average number of weeks of regular benefits received per claimant was 18.6 weeks for the twelve-month period ending October 2011. This is a decrease from the 2010 annual average of 19.7 weeks. These averages do not include benefits paid under special programs that extend benefits beyond the 26 weeks of regular benefits.

10

EXPERIENCE RATING

Description Experience rating means that each employer's unemployment insurance tax rate is based on the employer's own benefit, contribution, and wage history. For each employer an account is kept of the amount of benefits paid to former employees and the amount of taxes paid into the Unemployment Compensation Fund. At the end of the year, a reserve ratio is computed for each employer and that reserve ratio determines the employer's tax rate for the coming year. Appendix A describes this procedure.

Charged and Noncharged Benefits (Historical data from 1970: Appendix B, page A-9)

For experience rating purposes benefits paid to former employees are usually charged to the employers' individual accounts. However, under certain conditions where the employer may be considered not responsible for the claimant's unemployment, the benefits paid to that former employee is not charged to the employer's account. The conditions for noncharging are described in Appendix C. In 2010, 9% of all benefits paid were not charged to an individual employer account. Noncharged benefits are financed by Unemployment Compensation Fund interest income or by employers as a whole by triggering a higher tax schedule due to a lower fund balance.

2010 Employer Data The following tables show 2010 wage, benefit, and contribution data for employers who contribute to the Unemployment Compensation Fund and for whom a tax rate was computed for calendar year 2011. Information on employers who were covered under the Hawai‘i unemployment insurance program during 2010, but were no longer covered as of January 1, 2011, are not included in these tables. Data are shown by reserve ratio, county, and industry groups. The reserve ratio tables show 2010 data by reserve ratios as of the end of 2010. Also shown on those tables are the 2011 tax rates assigned to each reserve ratio group. Twenty-three percent of all employers were in the highest reserve ratio group with ratios of 0.1500 and higher. These 6,800 employers were assigned the minimum 1.2% tax rate for 2011. Fifteen percent of the employers were assigned the maximum 5.4% tax rate, mostly due to delinquent filing of tax reports.

11

Employer Data

2010 Employers and Wage Data by Reserve Ratio

Reserve Ratio End of 2010

2011 Tax Rate

Number of Employers

% of Total

Total Wages $000

% of Total

Taxable Wages $000

% of Total

.1500 and over 1.2% 6,823 23 3,578,858 22 2,085,588 19

.1400 to .1499 1.4% 1,045 3 790,877 5 513,971 5

.1300 to .1399 1.6% 1,094 4 1,027,381 6 691,249 6

.1200 to .1299 1.8% 1,213 4 1,082,747 7 784,856 7

.1100 to .1199 2.0% 1,166 4 973,673 6 690,285 6

.1000 to .1099 2.2% 1,182 4 872,772 5 593,443 5

.0900 to .0999 2.4% 1,074 4 720,403 4 526,816 5

.0800 to .0899 2.6% 1,366 5 773,809 5 529,345 5

.0700 to .0799 2.8% 1,795 6 839,807 5 589,146 5

.0600 to .0699 3.0% 1,138 4 714,268 4 527,362 5

.0500 to .0599 3.2% 1,217 4 538,821 3 388,391 4

.0300 to .0499 3.6% 718 2 720,873 4 529,912 5

.0000 to .0299 4.0% 742 2 587,362 4 412,081 4

-.0000 to -.0499 4.4% 735 2 523,730 3 339,746 3

-.0500 to -.0999 5.0% 480 2 531,459 3 362,699 3

-.1000 to -.4999 5.4% 1,452 5 840,583 5 522,853 5

-.5000 to -.9999 5.4% 501 2 267,527 2 163,234 2

-1.0000 to -1.4999 5.4% 193 1 149,601 1 91,303 1

-1.5000 to -1.9999 5.4% 75 0 64,611 0 37,995 0

-2.0000 and less 5.4% 153 1 42,408 0 27,933 0

New & Reactive 4.0% 4,004 13 365,022 2 280,270 3

N&R Neg Reserve 5.4% 250 1 6,537 0 5,739 0

Delinquent 5.4% 1,908 6 198,920 1 160,647 2

Total 30,324 100 16,212,049 100 10,854,864

100

Employment, wages, and percentages may not add to totals due to rounding.

12

2010 Benefit and Contribution Data by Reserve Ratio

Reserve Ratio End of 2010

2011 Tax Rate

Benefits Charged

$000

Benefits Noncharged

$000

Total Benefits

$000

% of Total

Cost Rate*

%

Contributions

$000

% of Total

Tax Rate*

%

.1500 and over 1.2% 7,827 2,468 10,295 4 0.5 6111 3 0.30

.1400 to .1499 1.4% 1986 884 2,870 1 0.1 2670 1 0.50

.1300 to .1399 1.6% 3827 1030 4,857 2 0.7 4,544 2 0.70

.1200 to .1299 1.8% 4,279 1,494 5,773 2 0.7 7,127 4 0.90

.1100 to .1199 2.0% 5,586 1,208 6,794 2 1.0 8,096 4 1.20

.1000 to .1099 2.2% 4,238 1,307 5,546 2 0.9 8,160 4 1.40

.0900 to .0999 2.4% 4,616 997 5,613 2 1.1 8,249 4 1.60

.0800 to .0899 2.6% 3,889 2,657 6,547 2 1.2 11,124 6 2.10

.0700 to .0799 2.8% 5,189 1,395 6,583 2 1.1 12,452 7 2.10

.0600 to .0699 3.0% 5,236 1,398 6,634 2 1.3 12,451 7 2.40

.0500 to .0599 3.2% 5,519 1,010 6,529 2 1.7 9,453 5 2.40

.0300 to .0499 3.6% 11,906 1,980 13,886 5 2.6 13,302 7 2.50

.0000 to .0299 4.0% 16,303 1,305 17,609 6 4.3 11,131 6 2.70

-.0000 to -.0499 4.4% 14,972 1,437 16,409 6 4.8 9,774 5 2.90

-.0500 to -.0999 5.0% 20,768 1,666 22,434 8 6.2 13,420 7 3.70

-.1000 to -.4999 5.4% 57,525 2,407 59,933 22 11.5 22,223 12 4.30

-.5000 to -.9999 5.4% 31,728 803 32,531 12 19.9 7,936 4 4.90

-1.0000 to -1.4999 5.4% 20,780 293 21,074 8 23.1 4,765 3 5.20

-1.5000 to -1.9999 5.4% 10,519 152 10,671 4 28.1 2008 1 5.30

-2.0000 and less 5.4% 7441 136 7,577 3 27.1 1486 1 5.30

New & Reactive 4.0% 463 125 588 0 0.2 8,578 5 3.10

N&R Neg Reserve 5.4% 818 37 855 0 14.9 241 0 4.20

Delinquent 5.4% 6,232 408 6,641 2 4.1 1,676 1 1.00

Total 251,647 26,599 278,246 100 2.6 186,978 100 1.70

Benefits, contributions, and percentages may not add to totals due to rounding.

* Cost Rate: Total Benefits divided by Taxable Wages; average for all employers is indicated on total line Tax Rate: Contributions divided by Taxable Wages; average for all employers is indicated on total line

13

2010 Employers and Wage Data by County

County

Number of Employers

% of Total

Total Wages $000

% of Total

Taxable Wages $000

% of Total

O‘ahu 16,831 55 8,500,123 52 5,554,645 51

Maui 3,876 13 1,328,162 8 969,787 9

Hawai‘i 3,719 12 1,216,376 8 912,901 8

Kaua‘i 1,579 5 679,216 4 505,215 5

Interstate 4,319 14 4,488,172 28 2,912,316 27

Total 30,324 100 16,212,049 100 10,854,864 100

Employment, wages, and percentages may not add to totals due to rounding.

2010 Benefit and Contribution Data by County

County Benefits Charged

$000

Benefits Noncharged

$000

Total Benefits

$000

% of Total

Cost Rate*

%

Contributions

$000

% of Total

Tax Rate*

%

O‘ahu 123,535 10,673 134,208 48 2.4 88,079 47 1.59

Maui 32,324 3,190 35,514 13 3.7 19,581 10 2.01

Hawai‘i 32,784 2,459 35,243 13 3.9 18,456 10 2.02

Kaua‘i 15,395 1,337 16,732 6 3.3 12,894 7 2.55

Interstate 47,608 8,940 56,548 20 1.9 47,969 26 1.65

Total 251,647 26,599 278,246 100 2.6 186,978 100 1.7

Benefits, contributions, and percentages may not add to totals due to rounding.

* Cost Rate: Total Benefits divided by Taxable Wages; average for all employers is indicated on total line Tax Rate: Contributions divided by Taxable Wages; average for all employers is indicated on total line

14

2010 Employers and Wage Data by NAICS Industry

Industry

Number of Employers

% of Total

Total Wages $000

% of Total

Taxable Wages $000

% of Total

Natural Resources & Mining

414 1 232,113 1 163,966 1

Utilities 36 0 270,282 2 116,019 1

Construction 2,989 10 1,755,353 11 1,005,804 9

Manufacturing 876 3 514,828 3 347,238 3

Wholesale Trade 1,848 6 808,200 5 494,268 5

Retail Trade 2,939 10 1,947,610 12 1,486,267 14

Transportation & Warehousing

766 3 929,540 6 611,949 6

Information 484 2 546,222 3 331,509 3

Finance & Insurance 989 3 1,045,679 6 578,380 5

Real Estate, Rental & Leasing

1,550 5 460,465 3 306,066 3

Professional, Scientific, & Technical Services

3,823 13 1,432,424 9 724,650 7

Management of Companies & Enterprises

166 1 82,883 1 31,982 0

Administrative & Support; Waste Management & Remediation Services

1,995 7 1,397,101 9 1,096,069 10

Educational Services 475 2 112,776 1 80,754 1

Health Care & Social Assistance

2,763 9 1,443,225 9 851,354 8

Arts, Entertainment & Recreation

473 2 205,331 1 157,904 1

Accommodation & Food Services

2,763 9 2,400,268 15 1,981,126 18

Other Services (except Public Administration)

3,274 11 597,357 4 468,951 4

Unknown 1,701 6 30,392 0 20,608 0

Total 30,324 100 16,212,049 100 10,854,864 100

Employment, wages, and percentages may not add to totals due to rounding.

15

2010 Benefit and Contribution Data by NAICS Industry

Industry

Benefits Charged $000

Benefits Noncharged

$000

Total Benefits

$000

% of Tota

l

Cost Rate*

%

Contributions

$000

% of Total

Tax Rate*

%

Natural Resources & Mining

7,819

307

8,126

3

5.0

3,828

2

2.33

Utilities 245 41 286 0 0.2 447 0 0.39

Construction 109,139 3,724 112,863 41 11.2 37,349 20 3.71

Manufacturing 8,031 762 8,794 3 2.5 5,155 3 1.48

Wholesale Trade 5,660 881 6,541 2 1.3 6,038 3 1.22

Retail Trade 11,807 3,192 14,999 5 1.0 17,176 9 1.16

Transportation & Warehousing

8,252 2,879 11,131 4 1.8 7,456 4 1.22

Information 7,480 512 7,992 3 2.4 6,053 3 1.83

Finance & Insurance

4,395 844 5,240 2 0.9 4,480 2 0.77

Real Estate, Rental & Leasing

5,716 682 6,398 2 2.1 5,830 3 1.90

Professional, Scientific, & Technical Services

9,992 945 10,937 4 1.5 11,169 6 1.54

Management of Companies & Enterprises

475 33 507 0 1.6 571 0 1.79

Administrative & Support; Waste Management & Remediation Services

30,954 4,223 35,177 13 3.2 26,647 14 2.43

Educational Services 1,167 177 1344 0 1.7 1,414 1 1.75

Health Care & Social Assistance

7,245 1,629 8,874 3 1.0 11,398 6 1.34

Arts, Entertainment & Recreation

3,483 472 3,955 1 2.5 2,639 1 1.67

Accommodation & Food Services

23,769 4,345 28,114 10 1.4 32,509 17 1.64

Other Services (except Public Administration)

5,701 926 6,627 2 1.4 6,347 3 1.35

Unknown 317 24 341 0 1.7 474 0 2.30

Total 251,647 26,599 278,246 100 2.6 186,978 100 1.72

Benefits, contributions, and percentages may not add to totals due to rounding.

* Cost Rate: Total Benefits divided by Taxable Wages; average for all employers is indicated on total line Tax Rate: Contributions divided by Taxable Wages; average for all employers is indicated on total line

16

This Page Intentionally Left Blank

A-1

APPENDIX A Computation of Employer Contribution Rates

An employer's Hawai‘i unemployment insurance tax rate is computed once a year based on the employer's reserve ratio and the tax schedule (one of eight possible schedules, A through H) in effect for the year. The tax rates corresponding to each tax schedule and reserve ratio group are shown below in the Contribution Rate Schedules table. Employers not chargeable with benefits for the 12-month period prior to the rate computation date are ineligible for an experience (reserve ratio) computation and are assigned the tax rate corresponding to a zero reserve ratio; if the ineligible employer has a negative reserve balance, a rate of 5.4% is assigned. Computation of Employer Reserve Ratio: Reserve Ratio = all contributions paid by the employer minus all benefits charged to the employer,

divided by 1/3 of the sum of the employer's taxable payrolls for the last 3 consecutive calendar years.

Determination of Tax Schedule:

(a) Compute Adequate Reserve:

Adequate Reserve = *highest benefit cost rate occurring during the last 10 years, times total wages for last completed fiscal year ending June 30.

Benefit cost rate = total benefits paid during a 12 consecutive month period, divided by total

wages for the last 4 completed calendar quarters ending at least 5 months before the end of the 12 consecutive month period.

(b) Compute ratio of Current Reserve to Adequate Reserve: Ratio = Current Reserve (Unemployment Compensation Fund balance as of November 30) divided by

Adequate Reserve.

(b) Determine Tax Schedule based on ratio of current to adequate reserve as shown below. *1.5 times multiplier was in effect for rate years 1970 to 1978 and 1992 to 2007. Contribution Rate Schedules Tax Schedule Computation A B C D E F G H Reserve Ratio Contribution Rates (%) Ratio of Current Tax Schedule .1500 and over 0.0 0.0 0.0 0.2 0.6 1.2 1.8 2.4 to Adequate Reserve .1400 to .1499 0.0 0.0 0.1 0.4 0.8 1.4 2.0 2.6 More than 1.69 A .1300 to .1399 0.0 0.0 0.2 0.6 1.0 1.6 2.2 2.8 1.3 to 1.69 B .1200 to .1299 0.0 0.1 0.4 0.8 1.2 1.8 2.4 3.0 1.0 to 1.29 C .1100 to .1199 0.0 0.2 0.6 1.0 1.4 2.0 2.6 3.2 0.80 to 0.99 D .1000 to .1099 0.1 0.3 0.8 1.2 1.6 2.2 2.8 3.4 0.60 to 0.79 E .0900 to .0999 0.3 0.5 1.0 1.4 1.8 2.4 3.0 3.6 0.40 to 0.59 F .0800 to .0899 0.5 0.7 1.2 1.6 2.0 2.6 3.2 3.8 0.20 to 0.39 G .0700 to .0799 0.7 0.9 1.4 1.8 2.2 2.8 3.4 4.0 Less than 0.20 H .0600 to .0699 0.9 1.1 1.6 2.0 2.4 3.0 3.6 4.2 .0500 to .0599 1.1 1.3 1.8 2.2 2.6 3.2 3.8. 4.4 .0300 to .0499 1.3 1.5 2.0 2.6 3.0 3.6 4.2 4.8 .0000 to .0299 1.7 1.9 2.4 3.0 3.4 4.0 4.6 5.2 -.0000 to -.0499 2.1 2.3 2.8 3.4 3.8 4.4 5.0 5.4 -.0500 to -.0999 2.5 2.7 3.2 4.0 4.4 5.0 5.4 5.4 -.1000 to -.4999 2.9 3.1 3.6 4.6 5.0 5.4 5.4 5.4 -.5000 to -.9999 3.4 3.6 4.2 5.2 5.4 5.4 5.4 5.4 -1.0000 to -1.4999 4.1 4.2 4.8 5.4 5.4 5.4 5.4 5.4 -1.5000 to -1.9999 4.7 4.8 5.4 5.4 5.4 5.4 5.4 5.4 -2.0000 and less 5.4 5.4 5.4 5.4 5.4 5.4 5.4 5.4

A-2

APPENDIX B Annual Data from 1970

LABOR FORCE DATA unadjusted

Hawai‘i U.S.

Year

Employment

UnemploymentTotal

Unemployment Rate

Total Unemployment

Rate

1970 305,650 15,900 4.9% 4.9% 1971 313,450 23,350 6.9% 5.9% 1972 324,050 26,950 7.7% 5.6% 1973 338,350 26,250 7.2% 4.9% 1974 345,350 29,650 7.9% 5.6% 1975 351,100 31,850 8.3% 8.5% 1976 372,250 38,000 9.3% 7.7% 1977 386,150 32,400 7.7% 7.1% 1978 394,300 28,250 6.7% 6.1% 1979 406,450 24,350 5.7% 5.8%

1980 419,750 21,250 4.8% 7.1% 1981 428,500 23,200 5.1% 7.6% 1982 432,450 27,250 5.9% 9.7% 1983 444,000 27,900 5.9% 9.6% 1984 451,400 25,700 5.4% 7.5% 1985 459,400 24,400 5.0% 7.2% 1986 473,500 22,350 4.5% 7.0% 1987 492,700 18,550 3.6% 6.2% 1988 503,750 15,700 3.0% 5.5% 1989 515,250 12,550 2.4% 5.3%

1990 537,600 13,400 2.4% 5.6% 1991 547,350 15,700 2.8% 6.8% 1992 551,550 24,450 4.2% 7.5% 1993 556,350 25,400 4.4% 6.9% 1994 555,750 30,050 5.1% 6.1% 1995 557,050 32,450 5.5% 5.6% 1996 561,700 35,050 5.9% 5.4% 1997 566,750 34,900 5.8% 4.9% 1998 570,150 34,150 5.7% 4.5% 1999 576,300 30,350 5.0% 4.2%

2000 584,850 24,150 4.0% 4.0% 2001 589,200 26,050 4.2% 4.7% 2002 584,350 24,600 4.0% 5.8% 2003 592,450 23,850 3.9% 6.0% 2004 598,200 19,950 3.2% 5.5% 2005 609,850 17,250 2.8% 5.1% 2006 617,800 15,700 2.5% 4.6% 2007 617,900 16,900 2.7% 4.6% 2008 613,800 25,850 4.0% 5.8% 2009 588,650 43,100 6.8% 9.3% 2010 587,400 41,600 6.6% 9.6%

Source: Hawai‘i Workforce Informer web page (www.hiwi.org) Note: Data from 1976 revised in 2005

A-3

APPENDIX B continued

INSURED UNEMPLOYMENT AND EMPLOYMENT COVERED BY THE UC FUND

Year

Insured Unemployment

Employees Covered by the Fund

Rate Average

Weekly Claims Number % change

1970 2.4% 6,124 221,498 1971 3.9% 10,789 225,633 2% 1972 4.8% 12,737 231,338 3% 1973 3.7% 10,527 246,201 6% 1974 4.2% 12,443 252,421 3% 1975 5.2% 16,939 255,772 1% 1976 6.3% 19,427 258,485 1% 1977 4.7% 14,998 267,018 3% 1978 3.4% 10,569 285,172 7% 1979 2.7% 9,798 302,404 6%

1980 2.9% 10,740 309,424 2% 1981 3.0% 11,681 311,997 1% 1982 3.5% 13,411 306,395 -2% 1983 3.5% 12,919 309,752 1% 1984 2.9% 11,104 317,669 3% 1985 2.6% 9,696 328,268 3% 1986 2.2% 8,548 337,832 3% 1987 1.7% 7,045 358,801 6% 1988 1.5% 6,452 371,952 4% 1989 1.1% 5,041 393,693 6%

1990 1.1% 5,547 416,341 6% 1991 1.5% 7,909 415,883 0% 1992 2.2% 11,520 415,275 0% 1993 2.5% 12,721 409,338 -1% 1994 2.9% 14,752 406,316 -1% 1995 3.0% 15,324 402,645 -1% 1996 3.0% 14,854 401,001 0% 1997 2.7% 13,356 400,817 0% 1998 2.5% 12,605 398,354 -1% 1999 2.2% 10,684 401,109 1%

2000 1.7% 8,413 414,768 3% 2001 2.0% 11,545 416,770 0% 2002 2.4% 11,979 414,417 -1% 2003 2.0% 10,327 422,293 2% 2004 1.6% 8,202 435,079 3% 2005 1.2% 6,260 452,366 4% 2006 1.1% 6,234 465,014 3% 2007 1.1% 6,798 472,151 2% 2008 1.8% 11,611 463,561 -2% 2009 3.4% 20,176 435,018 -6% 2010 3.2% 17,302 423,429 -3%

Sources: Insured Unemployment from ETA 539 Weekly Claims and Extended Benefits Trigger Data; Covered Employment from Quarterly Census of Employment and Wages

Note: Insured unemployment data includes private industry, state and county governments, and nonprofit organizations; it also includes extended benefits for 1971, 1972, 1975 through 1978, and 1980. Employment data is for private industry only.

A-4

APPENDIX B continued

WEEKLY BENEFIT AMOUNT AND AVERAGE DURATION

Year

Weekly Benefit Amount

Average Benefit

Duration Maximum Average (weeks)

1970 $79 $58 15.0 1971 $86 $63 18.3 1972 $90 $66 19.9 1973 $93 $68 16.0 1974 $98 $72 16.2 1975 $104 $76 16.4 1976 $112 $84 18.9 1977 $120 $89 16.4 1978 $126 $91 16.2 1979 $134 $93 13.5

1980 $144 $103 13.7 1981 $157 $114 14.2 1982 $169 $124 14.8 1983 $178 $123 15.8 1984 $188 $136 14.8 1985 $194 $134 14.6 1986 $200 $140 14.3 1987 $212 $150 13.4 1988 $223 $162 13.5 1989 $239 $170 12.0

1990 $256 $189 11.4 1991 $275 $206 13.0 1992 $306 $235 14.8 1993 $322 $246 17.6 1994 $337 $259 17.4 1995 $344 $262 16.0 1996 $347 $261 17.8 1997 $351 $259 17.1 1998 $356 $258 16.4 1999 $364 $266 16.5

2000 $371 $273 15.4 2001 $383 $282 12.8 2002 $395 $280 19.2 2003 $407 $298 15.7 2004 $417 $312 15.6 2005 $436 $328 14.2 2006 $459 $357 13.3 2007 $475 $374 13.6 2008 $523 $406 13.9 2009 $545 $411 18.9 2010 $559 $406 19.7 2011 $549 2012

$523

Source: Unemployment Insurance workload data on Gross Benefits,

Weeks Compensated and First Payments Note: Data are for all claim programs, including federal programs.

A-5

APPENDIX B continued

HAWAI‘I UNEMPLOYMENT COMPENSATION FUND (in millions of $)

Year

Taxes

Interest

Benefits

Fund Balance

1970 $13.6 $ 2.1 $14.7 $44.1 1971 $15.3 $ 2.1 $28.3 $33.3 1972 $22.0 $ 1.4 $30.9 $25.8 1973 $24.6 $ 1.2 $26.7 $25.0 1974 $26.5 $ 1.1 $35.3 $17.3 1975 $39.4 $ 0.7 $52.0 $ 5.3 1976 $48.8 $ 0.1 $66.1 -$11.9 1977 $63.3 $ 0.0 $50.2 $ 1.3 1978 $73.6 $ 0.6 $38.3 $37.2 1979 $68.9 $ 3.3 $31.4 $78.0

1980 $58.2 $ 7.0 $42.6 $100.6 1981 $53.4 $ 9.9 $57.5 $106.3 1982 $54.9 $11.5 $71.1 $101.6 1983 $70.9 $11.5 $61.0 $123.0 1984 $67.8 $13.4 $63.4 $140.9 1985 $60.2 $15.7 $54.3 $162.5 1986 $65.4 $12.9 $49.3 $191.5 1987 $75.1 $24.0 $42.6 $248.0 1988 $51.3 $22.5 $44.2 $277.7 1989 $64.0 $25.6 $35.4 $331.9

1990 $79.5 $31.3 $45.0 $397.7 1991 $55.2 $26.8 $76.0 $403.8 1992 $40.9 $41.7 $129.6 $356.7 1993 $67.0 $25.5 $145.4 $303.9 1994 $77.0 $19.6 $171.6 $228.9 1995 $150.0 $15.7 $180.4 $214.2 1996 $152.4 $14.9 $173.3 $208.2 1997 $144.2 $14.7 $154.2 $212.9 1998 $136.8 $15.1 $143.3 $221.5 1999 $134.1 $15.7 $124.1 $247.2

2000 $138.9 $17.8 $96.9 $307.0 2001 $106.3 $21.1 $136.1 $298.2 2002 $134.6 $24.2 $152.7 $304.3 2003 $147.0 $14.4 $123.6 $342.0 2004 $124.6 $26.0 $104.7 $388.0 2005 $130.2 $21.4 $82.3 $457.2 2006 $142.2 $23.3 $90.6 $532.1 2007 $108.4 $19.8 $108.2 $552.2 2008 $59.4 $31.5 $212.3 $430.8 2009 $42.1 $12.7 $373.9 $134.4 2010 $160.9 $1.9 $305.2 -$11.6

Source: ETA 2112, UI Financial Transaction Summary, Unemployment Fund

Fund Balance Notes:

2009: Includes $32.7 million in Federal ARRA (American Recovery & Reinvestment Act) receipts, minus $10.0 million in Reed Act withdrawals.

2010: Includes minus $3.6 million in Reed Act withdrawals.

A-6

APPENDIX B continued

RATIO OF CURRENT TO ADEQUATE RESERVE FUND Rate Year

High Cost Rate

Total Wages

Adequate Reserve

Fund

Current Reserve

Fund

Ratio of Current to Adequate

Reserve

Rate Schedule in Effect

Fund Solvency Contribution

Rate 1970 1.75% $1,184,552,472 $31,094,502 $43,936,906 1.41 II 1971 1.75% $1,431,300,051 $37,571,626 $46,163,790 1.23 II 1972 1.75% $1,560,306,438 $40,958,044 $36,349,934 0.89 I 1973 2.02% $1,643,467,385 $49,797,062 $28,304,965 0.57 I 1974 2.02% $1,821,684,864 $55,197,051 $27,420,364 0.50 I 1975 2.02% $2,015,606,435 $61,072,875 $20,073,147 0.33 I 1976 2.18% $2,247,956,108 $73,508,165 $10,730,152 0.15 - 1977 2.86% $2,389,822,190 $102,523,372 -$7,426,119 -0.07 - 1978 2.86% $2,578,562,218 $110,620,319 $5,992,114 0.05 - 1979 2.86% $2,859,429,314 $81,779,678 $39,159,914 0.48 +1.6%

1980 2.86% $3,314,556,620 $94,796,319 $80,341,186 0.85 +0.8% 1981 2.86% $3,769,977,490 $107,821,356 $104,980,243 0.97 +0.4% 1982 2.86% $4,111,362,943 $117,584,980 $112,290,817 0.95 +0.4% 1983 2.86% $4,292,985,503 $122,779,385 $106,708,377 0.87 +0.8% 1984 2.86% $4,498,499,775 $128,657,094 $127,176,245 0.99 +0.4% 1985 2.86% $4,801,506,793 $137,323,094 $147,004,681 1.07 0.0% 1986 2.86% $5,037,888,349 $144,083,607 $166,408,163 1.15 0.0% 1987 2.76% $5,500,278,375 $151,807,683 $195,095,469 1.29 0.0% 1988 1.94% $6,093,516,291 $118,214,216 $246,416,114 2.08 -0.5% 1989 1.68% $6,864,348,520 $115,321,055 $274,840,914 2.38 -0.5%

1990 1.68% $7,756,988,055 $130,317,399 $334,252,180 2.56 -0.5% 1991 1.68% $8,753,700,993 $147,062,177 $401,647,674 2.73 -0.5% 1992 1.68% $9,561,673,898 $240,954,182 $411,119,192 1.71 A 1993 1.66% $9,996,218,073 $248,905,830 $370,277,128 1.49 B 1994 1.49% $10,315,548,416 $230,552,507 $315,881,780 1.37 B 1995 1.65% $10,384,936,463 $257,027,177 $241,892,817 0.94 D 1996 1.73% $10,401,361,958 $269,915,343 $226,972,601 0.84 D 1997 1.78% $10,391,160,430 $277,443,983 $222,340,367 0.80 D 1998 1.78% $10,554,781,603 $281,812,669 $226,036,037 0.80 D 1999 1.78% $10,782,123,532 $287,882,698 $233,020,224 0.81 D

2000 1.78% $11,025,705,500 $294,386,337 $256,407,449 0.87 D 2001 1.78% $11,661,028,670 $311,349,465 $313,480,166 1.01 C 2002 1.78% $12,294,711,901 $328,268,808 $317,703,649 0.97 C* 2003 1.78% $12,412,503,464 $331,413,842 $309,477,079 0.93 D 2004 1.78% $13,070,239,827 $348,975,403 $352,679,746 1.01 C 2005 1.78% $13,820,414,010 $369,005,054 $389,302,103 1.06 C 2006 1.78% $15,032,599,530 $401,370,407 $457,851,939 1.14 C 2007 1.67% $16,258,037,800 $407,263,847 $532,892,238 1.31 B 2008 1.46% $17,113,432,304 $249,856,112 $561,709,268 2.25 A 2009 1.44% $17,834,793,224 $256,821,022 $454,058,555 1.77 A 2010 2.20% $17,411,259,934 $383,047,719 $161,906,928 0.42 D**

2011 2.22% $16,400,411,316 $364,089,131 $9,413,687 0.03 F** 2012 2.22% $16,709,152,489 $370,943,185 $37,507,312 0.10 H

Rate year: year during which rate schedule or Fund Solvency Rate is in effect. High Cost Rate: highest benefit cost rate (benefits as a percent of total wages) in the last ten years. Total Wages: for last four calendar quarters ending June 30 of calendar year prior to rate year. Adequate Reserve Fund: 1970 to 1978 and 1992 to 2007 adequate reserve equals 1.5 times high cost rate times total wages. 1979 to 1991 and from 2008, adequate reserve equals high cost rate times total wages. Current Reserve Fund: UC Fund assets on November 30 of calendar year immediately preceding rate year. Rate Schedule in Effect: From July 1, 1974 through March 31, 1975 all employers' tax rates were increased by 0.5%, up to a maximum of 3.0%; from April 1975 through the end of 1976, all employers paid 3.0% tax rate; for 1977 and 1978 all employers paid 3.5% tax rate. *2002: schedule C remained in effect due to special legislation. **2010 and 2011: Act 2 (2010 Legislative Session) set tax schedules at D and F.

A-7

APPENDIX B continued

UNEMPLOYMENT INSURANCE TAX RATES

Year

Tax Rates (Percent of Taxable Wages)

Taxes as a Percent of

Total Minimum Maximum Average Wages

1970 0.4% 3.0% 1.2% 0.8% 1971 0.4% 3.0% 1.4% 1.0% 1972 0.8% 3.0% 1.9% 1.3% 1973 0.8% 3.0% 1.8% 1.2% 1974 0.8%/1.3% 3.0% 1.9% 1.2% 1975 1.3%/3.0% 3.0% 2.6% 1.7% 1976 3.0% 3.0% 2.9% 1.9% 1977 3.5% 3.5% 3.5% 2.4% 1978 3.5% 3.5% 3.5% 2.4% 1979 1.8% 4.5% 2.8% 1.9%

1980 1.0% 4.5% 2.1% 1.4% 1981 0.6% 4.5% 1.8% 1.2% 1982 0.6% 4.5% 1.8% 1.3% 1983 1.0% 4.5% 2.3% 1.6% 1984 0.6% 4.5% 1.9% 1.3% 1985 0.2% 5.4% 1.6% 1.1% 1986 0.2% 5.4% 1.7% 1.2% 1987 0.2% 5.4% 1.7% 1.2% 1988 0.0% 5.4% 1.3% 0.6% 1989 0.0% 5.4% 1.3% 0.9%

1990 0.0% 5.4% 1.3% 0.9% 1991 0.0% 5.4% 1.3% 0.5% 1992 0.0% 5.4% 0.6% 0.4% 1993 0.0% 5.4% 1.0% 0.7% 1994 0.0% 5.4% 1.1% 0.8% 1995 0.2% 5.4% 2.2% 1.6% 1996 0.2% 5.4% 2.1% 1.5% 1997 0.2% 5.4% 1.9% 1.4% 1998 0.2% 5.4% 1.8% 1.3% 1999 0.2% 5.4% 1.7% 1.2%

2000 0.2% 5.4% 1.7% 1.2% 2001 0.0% 5.4% 1.1% 0.8% 2002 0.0% 5.4% 1.2% 0.8% 2003 0.2% 5.4% 1.7% 1.2% 2004 0.0% 5.4% 1.2% 0.8% 2005 0.0% 5.4% 1.3% 0.9% 2006 0.0% 5.4% 1.3% 0.9% 2007 0.0% 5.4% 0.8% 0.6% 2008 0.0% 5.4% 0.7% 0.3% 2009 0.0% 5.4% 0.7% 0.25% 2010 0.2% 5.4% 1.8% 1.2%

2011 1.2% 5.4% 2.7% est 1.8% est 2012 2.4% 5.4% 3.8% est 2.6% est

Source : Quarterly Census of Employment and Wages (QCEW)

Note for 1974 and 1975: Minimum tax rate was 0.8% until July 1, 1974 then all employers' rates were increased by 0.5%, up to a maximum of 3.0%. The additional 0.5% was in effect until April 1, 1975 when all employers' rates became 3.0%.

A-8

APPENDIX B continued

TOTAL AND TAXABLE WAGES

Year

Total Wages

% change

Taxable Wages

% change

% Taxable of Total Wages

Taxable Wage Base

1970 $1,518,727,161 $1,032,646,028 68% $5,500 1971 $1,588,451,281 5% $1,101,177,779 7% 69% $6,000 1972 $1,707,659,488 8% $1,171,863,417 6% 69% $6,300 1973 $1,935,415,073 13% $1,310,016,575 12% 68% $6,500 1974 $2,129,778,886 10% $1,418,777,880 8% 67% $6,800 1975 $2,319,971,771 9% $1,537,695,558 8% 66% $7,300 1976 $2,471,414,660 7% $1,634,221,510 6% 66% $7,800 1977 $2,669,873,342 8% $1,890,965,749 16% 71% $9,300 1978 $3,084,161,546 16% $2,153,653,091 14% 70% $9,800 1979 $3,551,357,801 15% $2,443,433,910 13% 69% $10,400

1980 $3,934,930,405 11% $2,689,241,050 10% 68% $11,200 1981 $4,227,065,294 7% $2,921,073,895 9% 69% $12,200 1982 $4,349,032,222 3% $3,030,663,748 4% 70% $13,100 1983 $4,599,981,090 6% $3,198,088,181 6% 70% $13,800 1984 $4,891,168,412 6% $3,430,347,509 7% 70% $14,600 1985 $5,245,375,308 7% $3,661,947,705 7% 70% $15,100 1986 $5,686,112,648 8% $3,922,702,338 7% 69% $15,600 1987 $6,402,054,956 13% $4,391,057,014 12% 69% $16,500 1988 $7,192,157,365 12% $3,314,009,708 -25% 46% $8,700 1989 $8,130,492,059 13% $5,518,167,643 67% 68% $18,600

1990 $9,237,628,172 14% $6,226,942,266 13% 67% $19,900 1991 $9,599,527,870 4% $3,342,374,834 -46% 35% $7,000 1992 $10,155,519,160 6% $7,042,429,428 111% 69% $22,700 1993 $10,291,898,574 1% $7,251,815,678 3% 70% $23,900 1994 $10,309,424,610 0% $7,394,972,486 2% 72% $25,000 1995 $10,320,158,899 0% $7,411,024,845 0% 72% $25,500 1996 $10,443,561,580 1% $7,420,054,226 0% 71% $25,800 1997 $10,675,517,263 2% $7,483,098,627 1% 70% $26,000 1998 $10,899,921,524 2% $7,560,072,702 1% 69% $26,400 1999 $11,180,959,288 3% $7,748,893,876 2% 69% $27,000

2000 $11,945,344,421 7% $8,209,730,134 6% 69% $27,500 2001 $12,299,179,723 3% $8,455,669,862 3% 69% $28,400 2002 $12,701,746,952 3% $8,701,690,997 3% 69% $29,300 2003 $13,376,170,472 5% $9,155,378,879 5% 68% $30,200 2004 $14,461,560,596 8% $9,752,243,796 7% 67% $31,000 2005 $15,471,398,437 7% $10,545,452,082 8% 68% $32,300 2006 $16,520,578,034 7% $11,353,002,832 8% 69% $34,000 2007 $17,508,474,137 6% $12,056,590,692 6% 69% $35,300 2008 $17,626,344,437 1% $6,452,926,682 -47% 37% $13,000 2009 $16,587,402,171 -6% $5,891,874,889 -9% 36% $13,000 2010 $16,292,046,023 -2% $10,916,560,473 85% 67% $34,900

2011 $34,200 2012 $38,800

Source: Wages from Quarterly Census of Employment and Wages (QCEW)

A-9

APPENDIX B continued

CHARGED AND NONCHARGED BENEFITS (in millions of $)

Year

Total Benefits

Charged Benefits

% of Total

Noncharged Benefits

% of Total

1970 $14.7 $8.8 60% $5.9 40% 1971 $27.9 $18.2 65% $9.7 35% 1972 $28.0 $18.2 65% $9.8 35% 1973 $26.3 $15.7 60% $10.6 40% 1974 $34.9 $21.3 61% $13.7 39% 1975 $47.0 $30.1 64% $16.8 36% 1976 $57.5 $43.1 75% $14.4 25% 1977 $45.1 $44.3 98% $0.9 2% 1978 $36.0 $35.6 99% $0.4 1% 1979 $30.5 $30.2 99% $0.3 1%

1980 $40.7 $40.2 99% $0.5 1% 1981 $56.7 $56.1 99% $0.6 1% 1982 $70.5 $69.9 99% $0.6 1% 1983 $60.9 $59.7 98% $1.2 2% 1984 $62.4 $61.8 99% $0.6 1% 1985 $53.9 $53.4 99% $0.5 1% 1986 $48.4 $47.8 99% $0.6 1% 1987 $43.6 $36.6 84% $7.0 16% 1988 $44.1 $35.3 80% $8.8 20% 1989 $35.4 $26.9 76% $8.5 24%

1990 $44.2 $30.9 70% $13.3 30% 1991 $76.5 $56.6 74% $19.9 26% 1992 $129.1 $101.7 79% $27.4 21% 1993 $144.8 $105.9 73% $38.9 27% 1994 $170.5 $137.9 81% $32.6 19% 1995 $178.9 $148.0 83% $30.9 17% 1996 $171.7 $145.5 85% $26.2 15% 1997 $153.8 $131.5 85% $22.3 15% 1998 $142.4 $121.9 86% $20.5 14% 1999 $123.2 $104.4 85% $18.8 15%

2000 $96.1 $79.6 83% $16.4 17% 2001 $132.9 $109.9 83% $22.9 17% 2002 $144.7 $120.0 83% $24.6 17% 2003 $122.2 $102.9 84% $19.3 16% 2004 $103.7 $87.5 84% $16.2 16% 2005 $81.8 $67.0 82% $14.8 18% 2006 $90.1 $72.7 81% $17.4 19% 2007 $107.6 $88.0 82% $19.7 18% 2008 $211.2 $179.5 85% $31.7 15% 2009 $374.2 $331.6 89% $42.6 11% 2010 $304.8 $276.2 91% $28.7 9%

Source: ETA-204, Experience Rating Report Includes regular program benefits only; does not include extended benefits

A-10

APPENDIX C Benefits Not Charged to Employer Accounts

The following types of unemployment insurance benefits are not charged to individual employer's unemployment insurance accounts:

a. Benefits paid to a claimant based on wages from an employer from whom the claimant voluntarily quit work without good cause

1;

b. Benefits paid to a claimant based on wages from an employer from whom the claimant was discharged

for misconduct connected with work; c. Benefits paid to a claimant based on wages from an employer from whom the claimant left work

voluntarily for a good cause that was not attributable to the employer; d. Benefits paid to an individual who during that individual's base period earned wages for part–time

employment with an employer, are not charged to that employer if the employer continues to employ the individual to the same extent while the individual is receiving benefits as during the individual's base period;

e. Benefits paid to an individual for the period that individual is enrolled in and is in regular attendance at

an approved training course; f. One–half of Extended Benefits (the other half of EB is financed with federal unemployment tax funds)

2;

g. Benefits paid to an individual who qualifies to receive benefits by meeting the minimum earnings and

employment requirements only by combining the individual's employment and wages earned in two or more states

3;

h. Benefits overpaid to a claimant as a result of ineligibility or disqualification, unless the overpayment

resulted from the employer's failure to furnish information as required; i. Benefits paid to an individual based on wages from an employer from whom the individual is separated

as a direct result of a major disaster.4

1Benefits described in a, b, and c were chargeable from July 15, 1976 through October 4, 1986. 2EB was chargeable from January 1, 1985 through October 4, 1986. 3Benefits described in g and h became nonchargeable from July 15, 1976. 4 Effective from September 13, 1992.

A-11

APPENDIX D The Hawai‘i Unemployment Compensation Fund and Economic Conditions: 1970 to the Present

1970 The 1970s began with a low IUR (Insured Unemployment Rate) of slightly above 2% and high fund reserves in excess of $40 million.

1971 Unemployment increased throughout 1971 in the aftermath of the Mainland recession, and due partly to a lengthy

dock strike in the second half of the year. The Extended Benefits program was initiated allowing an additional 13 weeks of unemployment insurance benefits to be paid to claimants who exhaust their 26 weeks of regular benefits during periods of high unemployment. Hawai‘i paid extended benefits from October 1971 through December 1972. Increasing unemployment and additional benefits paid out under the Extended Benefits program caused benefit outgo to increase and the fund balance to decline.

1972 The fund continued to decline as additional dock strikes and continuing Extended Benefits payments caused benefit

outgo to remain high. 1973 Unemployment decreased slightly causing the fund balance to remain relatively level. 1974 The IUR began to climb again as Mainland recessionary conditions started affecting Hawai‘i. 1975 Hawai‘i began a new Extended Benefits period beginning in February 1975 as unemployment continued to increase.

This EB period continued until March 1978 (except for a short break in the program during August 1977). 1976 The IUR reached a peak of 7% in the first half of 1976. During the 1974 through 1976 period, the fund balance was

drastically reduced by the unprecedented high level of unemployment and corresponding high benefit outgos. The fund was depleted in 1976. Benefits continued to be paid during the year through the use of $22.5 million in federal loans to the fund.

1977 The economy began to improve slightly, although construction strikes caused unemployment to temporarily increase

at the end of 1977 and early 1978. In order to rejuvenate the fund, tax rates, which had been gradually increasing during the 1970s, were set at a uniform rate of 3.5% for 1977.

1978 The flat 3.5% tax rate continued to be in effect. As the economy improved, the IUR steadily declined until it leveled

off at about 3% during the second half of the year. With the increased income and declining outgo, the fund balance was brought out of its negative levels and the federal loan was repaid late in 1978.

1979 Varied tax rates for employers (experience rating) was reinstituted; this caused fund income to decline slightly from

the high 1978 level. Benefits remained relatively low, resulting in a further increase in the fund balance to $78 million by the end of 1979.

1980 Employer tax rates were again decreased based on the healthy fund reserves. Although Hawai‘i's unemployment

remained low, an Extended Benefits period was triggered on by high national unemployment. This EB period was from July 1980 to January 1981. Fund income exceeded outgo and reserves reached $100.6 million by the end of 1980.

1981-1984 Unemployment was very stable with the IUR fluctuating only between 2.5% and 3.5%, weathering airline,

construction, and other strikes occurring during this time. The fund balance was kept at about the adequate reserve level throughout the period

1985 Tax schedules were adjusted to include a maximum tax rate of 5.4% in order to allow employers to continue to

receive full tax credits under the Federal Unemployment Tax Act (FUTA). 1986-1987 The tourism and construction industries were in a boom period resulting in declining unemployment and a growing

fund balance. 1988 The high fund balance resulted in the triggering of a negative Fund Solvency Rate for the first time. Also, a one-year

special law provision cut the Taxable Wage Base to 50% of the statewide average annual wage. 1989 Unemployment continued to decline with the IUR reaching an all time low of 0.96% in December 1989. The fund

continued to be more than twice the adequate reserve level allowing the negative 0.5% Fund Solvency Rate to remain in effect.

1990 Despite Mainland recessionary conditions, Hawai‘i tourism and construction continued to do well through 1990.

Although a hotel strike during March caused a temporary rise in unemployment, the average IUR for the year remained level with 1989.

A-12

APPENDIX D continued

1991 The Persian Gulf War triggered a slowdown in March as tourist traffic declined dramatically and unemployment jumped. Mainland recessionary conditions began affecting Hawai‘i's economy as unemployment remained high through the year especially in the construction and tourism related industries. A one-year special provision cut the taxable wage base to $7,000.

1992 A new tax schedule system was implemented and the lowest tax schedule (A) was in effect for 1992. Hurricane Iniki

hit the islands in September 1992 resulting in major damage and high unemployment on Kaua‘i. Mainland and Japanese recessionary conditions continued to weaken the tourist and construction sectors. The end of year fund balance declined from the previous year for the first time since 1982.

Emergency Unemployment Compensation (EUC) benefits were paid to claimants from November 1991 through April 1994. EUC benefits, paid to claimants who exhausted their regular state benefits, were 100% federally funded.

1993-1994 Tax schedule B was in effect for 1993 and 1994, keeping the average unemployment tax rate at a low 1%. At the

same time, the tourism and construction sectors remained sluggish causing large benefit payouts from the fund. 1995-1998 The economy remained flat from 1995 through 1998, with benefit levels declining slightly each year. The fund

balance stabilized at around $210 million and tax schedule D stayed in effect from 1995 through 1998.

1999-2000 The economy was on the rise with insured unemployment dropping below 2% and the fund balance reaching $300

million levels, triggering tax schedule C for 2001.

2001-2002 In the aftermath of terrorist attacks on the World Trade Center and the Pentagon on September 11, 2001, the

number of unemployed increased and the fund balance began to drop. Special legislation provided Hawai‘i claimants exhausting regular benefits between September 11, 2001 and June 30, 2002 with 13 weeks of additional benefits and kept tax schedule C in effect for calendar year 2002. A special federally funded program, Temporary Extended Unemployment Compensation (TEUC) also provided an additional 13 weeks of benefits to claimants, effective from March 10 to December 31, 2002.

2003-2004 The federal TEUC program was extended to December 31, 2003 with a transition period for the continuation of

payments to individuals, who had balances as of the end of December, to March 31, 2004. Effective from April 20, 2003 through December 28, 2003, displaced airline and related workers who exhausted their 26 weeks of regular benefits received up to 39 weeks of additional federally funded TEUC-A benefits. Throughout 2004, Hawai‘i’s unemployment dropped significantly resulting in a growing trust fund.

2005-2006

Tourism, construction and real estate contributed to a very healthy economy where the insured unemployment rate dropped to 1.0% by the last quarter of 2005. The fund balance grew to more than $500 million by November 2006 triggering a decrease in tax rates to Tax Schedule B for calendar year 2007.

2007

The 2007 Legislature enacted Act 110 which: increased the partial earnings disregard amount from $50 to $150; increased the maximum weekly benefit amount formula from 70% to 75% of statewide average annual wages for calendar years 2008 through 2010; set the taxable wage base at $13,000 for calendar years 2008 through 2010; and changed the adequate reserve formula to remove the one and one-half times multiplier for the calendar years 2008 through 2010 tax schedule computations.

2008-2009 Airline closures in April 2008, the departure of major cruise ships, closures of pineapple and sugar operations, and

finally major problems with the national financial sector resulted in a downturn in both the national and Hawai‘i economies. The tourism and construction industries were especially hard hit. Recessionary conditions on the Mainland and in Hawai‘i resulted in the IUR nearly doubling from an average 1.78% in 2008 to 3.36% in 2009, and the fund balance falling from $552 million at the end of 2007 to $134 million as of the end of 2009.

A 100% federally financed Emergency Unemployment Compensation (EUC08) program was enacted to provide claimants who exhaust their regular 26 weeks of benefits with an additional 13 weeks of benefits effective from July 6, 2008. From November 23, 2008 an additional seven weeks were added, for a total of 20 weeks, of EUC08 benefits. Beginning with the week ending May 9, 2009, claimants who exhaust their first 20 weeks of EUC08 benefits (Tier 1) before December 31, 2009 could receive an additional 13 weeks of Tier 2 EUC08 benefits. Effective with the week ending November 14, 2009, claimants are eligible for one additional week of Tier 2, and 13 weeks of Tier 3 EUC08 benefits. This brought the total to 47 weeks of federally funded EUC08 benefits for Hawai‘i claimants.

A-13

2010-2011 The EUC08 program was extended twice in 2010 and is scheduled to end January 3, 2012. Claimants who exhaust

their regular or EUC08 tier benefits will not be able to begin a new tier after that date. Claimants may continue to receive benefits under their current tier until June 9, 2012.

Act 2 was enacted during the 2010 Legislative Session resulting in: extending the 75% formula for computing the

maximum weekly benefit amount for 2010 and 2011; reducing the taxable wage base formula to 90% of the statewide average annual wage for 2010 and 2011; permanently reducing the adequate reserve fund definition by eliminating the 1.5 times multiplier; and setting the tax schedules at D for 2010 and F for 2011, rather than applying the computed tax schedules which would have been F and G respectively.

Economic conditions slowly improved throughout this period with the IUR declining from 3.4% in January 2010 to

2.4% in November 2011. However, benefit outgo continued to exceed contributions through the first half of 2011. The unemployment fund was depleted in December 2010 requiring Hawai‘i to borrow federal Title IX loan funds to continue paying benefits. From December 2010 through August 2011, $163 million in federal loans were received. All loans were repaid by August 2011.